We learn how to build a two-sided marketplace financial model in Excel, one of the most important business models for eCommerce startups. Included below is a downloadable template.

✅ Marketplace Financial Model Template Download: https://bit.ly/mktplc_mlchmp

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Many startups these days look to build marketplaces that serve as infrastructure for businesses to market, sell, etc. But eCommerce marketplaces are complicated because they require a delicate balance between supply & demand.

If a marketplace doesn't have enough supply, there will be nothing to buy and the users will churn. And if the marketplace doesn't have enough demand, suppliers will not be able to sell. So having the right balance is tricky, and scaling this balance rapidly is not easy.

In this video, we learn about how to plan, build, and forecast a marketplace business:

Sections:
0:18 Intro to customer acquisition model for sellers vs. buyers (supply vs. demand)
4:14 Seller acquisition in a marketplace (paid acquisition, organic, direct sales team)
9:58 Forecasting seller churn
12:45 Buyer acquisition in a marketplace (paid, organic, seller-driven)
19:27 Intro to customer retention for eCommerce
19:50 Build customer cohort model to calculate customer retention & revenue in eCommerce
23:43 Individual customer cohort explanation and calculation (new and returning clients)
28:57 Calculating total orders (new & returning) for revenue
29:35 Building income statement for eCommerce marketplace
30:34 Marketplace financial model revenue assumptions
32:00 COGS assumptions
37:58 Gross margin
39:08 Easy way to project payroll and operating expenses for a startup
50:07 Operating profit, burn rate, cash runway, breakeven analysis

CONTEXT: ECOMMERCE MARKETPLACES TODAY

Most large technology companies are marketplaces for something. Amazon is a marketplace for online stores to find clients. Facebook is a marketplace for online advertisers to target groups of people. Google is a marketplace for online advertisers to target specific search queries. Uber is a marketplace for drivers to find passengers.

This is not to say that all tech companies are marketplaces, but taking something that has a costly physical infrastructure and rebuilding it digitally has incredible advantages.

MARKETPLACE FINANCIAL MODELS

In terms of building a marketplace, you need to think about customer acquisition on the seller as well as the buyer side. Customer acquisition costs will likely be much higher for sellers than buyers.

You will often have to do your own paid customer acquisition, but also be assisted by buyers bringing in clients, and organic traffic should get amplified with scale on both the supply and demand sides.

PRO TIP: CUSTOMER RETENTION IN ECOMMERCE

If you have any non-subscription business, you will expect customers to return many times over many years - but the frequency and timeline are hard to predict with simple return rates.

With e-commerce (and any business), there is really only one very accurate way to calculate customer retention and recurring revenue - customer cohort models.

In this video, we learn how to build a customer cohort model using retention assumptions to predict repeat buyer behavior for our clients.

This is probably something you've never seen before, but it will give you a much more accurate way to forecast recurring customers.

BURN RATES / CASH RUNWAY / PROFITABILITY

Marketplaces require significant upfront capital to build and scale - so you need a solid financial model for this.

In the beginning, you will fight for each customer and each seller, but over time organic traffic will snowball on the buyer & seller side.

You need a clear idea of all of this so that you can fundraise accordingly and predict burn rates.

I hope that you are now confident in building marketplace financial models. If you have questions leave a comment below and I'll try to help. Cheers!

#marketplacefinancialmodel #marketplace #startups #ecommerce